First, plans, forecasts and visions are all about largely extrapolating from the past into the future. This makes sense. Trying to leap from being an old-style metal basher to becoming a travel company does not make sense.
Investors can switch more easily than management, and the problem of the metal bashers has still not been solved. So most businesses and managers are stuck on a trajectory from the past. We learn certain patterns of success and failure, and it is natural to stick with what we know.
Second, reality is uncomfortable. Even when the outside world does change, most businesses find it difficult to move fast enough or far enough. The immediate reaction is to protect what you have rather than to change to something new and unfamiliar. So we play well-worn internal games: budget revisions, disappearing baselines and internal initiatives are all ways of showing we are in control, of looking good to our bosses without having to deal with a fundamentally changed world.
We have to believe that we are in control. If we are not in control, then we are not managing. So the whole panoply of corporate life-support systems is devoted to ensuring that we are seen to be in control. From visions, through plans and into the minutiae of budgets we attempt to show that we are in control of our destiny.
The facts do not support the hope that we are in control. If we are truly in control, we would not fail. But the corporate landscape is littered with the corpses of failed businesses and managers. In the 1920s, when the S&P index was first formed, the life expectancy of the 90 original index constituents was 65 years. Now life expectancy within the expanded S&P 500 is about 10 years.
The falling half-life of corporate success is mirrored in the falling career expectancy of a CEO, which is now less than five years for the CEO of a FTSE-100 company. And even if the CEO remains in post, the company may not remain in the FTSE-100 that long. Of the 100 companies in the original index in 1984 only 29 remain intact, and another 12 remain in altered or merged form. The rest have been acquired, gone bankrupt or been overtaken.
The reality is that most managers, even CEOs, can actually control very little themselves. Whatever a manager may hope to control within the organisation, management cannot control the external world. Politics, regulation, technology and customer needs all have the habit of changing in ways that we do not expect.
Most of the long-lived major companies happen to be in industries that have been most stable: oil, autos, insurance and mass branded goods (Mars, McDonald’s, Coca-Cola). Unstable industries have seen the greatest changes in the competitive landscape. This is obvious, but raises the question as to why successful incumbent companies consistently fail to succeed when the market place changes. If they have genuinely successful management, then they should succeed through change as well as stability. The alternative explanation is that they have no more than average management who have been smart enough to join a successful business in a stable industry.
There are a few companies that have transformed themselves successfully, led most notably by GE when it was under the leadership of Jack Welch.
These exceptions are notable precisely because they are so rare. The lessons from leaders such as Jack Welch are not necessarily transferable to mere mortals.
We may be able to analyse what great sportspeople like Tiger Woods, Michael Jackson or David Beckham do. But that does not mean we can transfer their skills to everyone else. Most athletes and managers have to learn a humbler set of skills for survival. In practice this means that we learn a few routines and techniques, which we continually hone and practise.
In this way we learn a set of survival routines for both ourselves and the business.
Hopefully we are at least as good as other people in competing organisations. Provided the rules of the game do not change and the skills required do not change, we survive. But when a new player appears playing a new game, most of us struggle to compete.
We prefer, and we are better at, competing in the old way.
So we are in control of our destiny, provided the world around us does not change too much. As soon as the world changes, both businesses and individuals lose control quickly. And the world continues to change fast. Despite this, most management effort is directed at controlling what is easy (internal matters like budgets, costs, processes, staff) and not at what we must control: the market place.
There have been great leaders who have changed the shape of history: Alexander the Great, Genghis Khan, Napoleon and Churchill are among the greats.
They achieved the Kissinger view of leadership: leading people where they would not have gone by themselves.
Most business managers are not going to be great like Alexander, even though quite a few seem to have been to the Genghis Khan school of interpersonal skills. Most business leaders are not creating great new empires.
If you look at the Dow Jones index or the Eurotop 100, there are very few managers who can claim that they have built the empire they run. Bill Gates at Microsoft is the major exception.
Most business leaders are not leading: they are acting as custodians and managers of an empire that they have inherited.
Very few of them can create new empires like the truly great leaders could.
By acting as custodians of a business empire and of the business model that drives the empire, business leaders submit themselves to the mercy of the market.
As long as the market is benign, the empire thrives. The real test of the leader is the ability to anticipate, or at least react effectively to, major shifts in the market place.
- This is an edited extract from Hard Core Management by serial entrepreneur Jo Owen.
Does Darwin's theory apply to taxation? Colin ponders...
The EC has been instructed to draft a European Union (EU) directive authorising an EU financial transaction tax, which would apply to ten of the EU’s 28 member states
Accountancy watchdog the FRC has dropped its investigation into the former chief financial officer of Tesco, nearly two years after the supermarket was engulfed in an accounting scandal
Colin imagines how Apple's logo might change in the wake of the EC's ruling over its Irish tax arrangements